BRICS Bank on the anvil

The proposed bank would mobilise resources for infrastructure and sustainable development projects in BRICS. Source: PhotoXpress

A regional bailout fund is likely to be formally set up during the 5th BRICS summit in Durban on March 26-27.

The BRICS grouping is on the cusp of
unveiling plans to come up with its own bank. There are, however, no grandiose
or super ambitious plans to take on global financial institutions like the
World Bank and International Monetary Fund; not just yet even though the BRICS
share of global GDP is currently hovering around 18 percent and is set to grow
to 26 percent over the next decade.

The single point objective of the grouping
of the five nations spanning across four continents is to put in place its own
system of mutual lending and enable funding of big ticket developmental
projects in the member countries and also help other nations to develop ties
with BRICS.

The regional bailout fund is likely to be
formally set up during the 5th BRICS summit in Durban, South Africa (March
26-27, 2013). The most important feature
of this initiative would enable the member countries to bypass the need for
rushing to the Western-dominated and controlled Bretton Woods system which
extends loans with conditions attached. Most often these conditions are not
conducive to the socio-political climate of the targeted countries.

South
African Minister’s Caveat

Before we discuss the broad contours of the
proposed BRICS bank, we should take note of South African deputy minister for
trade and industry Elizabeth Thabethe’s important caveat. She has put the
things in perspective with a measured comment in an interview with the Business
Standard, a leading Indian economic daily last week.

Thabethe pointed out that the BRICS finance
ministers were tasked at the 2012 Summit to look into the feasibility and
viability of the proposed BRICS Development Bank. “A report on the findings
will be presented to the leaders at the upcoming Summit, but I have to
reiterate and reassure that it is not the intention of this proposed new
development bank to replace any of the existing financing institutions,” she
told the daily. “Its aim is to provide additional and also niche financing
where it is not available or forthcoming, notably for emerging markets and
developing economies in sectors critical for attaining their developmental
goals.”

Asked whether a formal declaration will be
made at the upcoming Durban summit after the feasibility report is presented
she told the Business Standard that it was “a work in progress” and there were
still many issues left to be sorted out. Sample her candid reply: “Establishing
a development bank is not a small endeavour which is why the leaders at the
previous summit requested the ministers of finance to thoroughly investigate
all the aspects around the possibility of forming such an institution. This was
taken very seriously and apart from being in regular contact electronically,
the ministers and their teams have met four times in committee to discuss this
issue further… One can expect further discussions and negotiations going
forward.”

The Corpus

BRICS leaders had initially aimed sky high
in determining the corpus fund of the proposed bank. A highly ambitious sum of
$240 billion was being talked about. However, the ground realities and the
unrelenting global economic recession seemed to have watered down their
enthusiasm.

Now it looks like that the initial corpus
fund of the BRICS bank would be a more realistic and doable $50 billion with
each of the five members being an equal contributor and stakeholder, though it
is to be seen whether all five members would be able to meet even this scaled
down target.

The idea had been geminating for quite some
time in the minds of the BRICS leaders but it came for a focused attention at
the 4th BRICS summit in New Delhi on March 29, 2012.

BRICS moved quickly after the New Delhi
summit and on June 10, 2012 a special working group was set up by the grouping
to thrash out the broad contours of the BRCS mutual fund. This working group is
also seized with the task of creating another financial institution – a BRICS
development bank which would mainly be funding infrastructure projects in the
member countries.

The concept, expected to be implemented
during the Durban summit, can enhance the BRICS’ clout globally and set an
example for other regional bodies to emulate, if it were to be implemented in
copy book style. Its success would inevitably increase solidarity among the
member countries.

Each of the five member nations is a world
leader in something or the other. While China and India are the world's major
granaries Russia is world leader in oil and gas production, China is a top coal
producer and Brazil is the number one producer of sugar and coffee.

BRICS
Currency

An important thing to be seen is what will
be the currency for the BRICS mutual fund and development bank. While China has
been pushing for its currency Yuan to be the currency for the BRICS financial
institutions, the other member states are not in favour. The consensus may be
on the US dollar or Special Drawing Rights (SDRs) as BRICS reserves currency.

It is envisaged that the bank would provide
pooled funds for targeted infrastructure projects and key sectors, while
supporting and driving increased commerce between the BRICS and other emerging
economies.

Although multilateral institutions such as
the World Bank and International Monetary Fund (IMF) already perform a similar
function, BRICS countries say the new bank would not compete with these but
rather supplement them, especially in developing countries.

South Africa’s director-general in the
Department of International Relations and Cooperation, Jerry Matjila, went on
record as saying recently that there was political will among the group to have
the bank.

Pretoria is lobbying hard to host the bank.
The African nation had co-chaired the preparatory work on the bank together
with India. For the first time since BRICS came into existence, high-level
representatives of Africa's regional economic blocs and the African Union (AU)
have also been invited to attend.

South Africa's Acting High Commissioner to
India Malusi Mogale has said a feasibility report on setting up the BRICS
development bank would be presented at the upcoming summit. “The development
bank would help in providing additional and niche financing,” he said.

The proposed bank would mobilise resources
for infrastructure and sustainable development projects in BRICS and other
emerging economies. It is also expected to supplement the existing efforts of
multilateral and regional financial institutions for global growth and
development, it had said.

The writer is a New Delhi-based journalist-author and
a strategic affairs analyst